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EZCORP INC - Quarter Report: 2022 March (Form 10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                         
Commission File No. 0-19424
ezpw-20220331_g1.jpg
EZCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware74-2540145
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
2500 Bee Cave RoadBldg OneSuite 200RollingwoodTX78746
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (512) 314-3400
Securities registered pursuant to Section 12(b) of the Act
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Non-voting Common Stock, par value $.01 per shareEZPWNASDAQ Stock Market
(NASDAQ Global Select Market)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated Filer
Non-accelerated FilerSmaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
The only class of voting securities of the registrant issued and outstanding is the Class B Voting Common Stock, par value $.01 per share, all of which is owned by an affiliate of the registrant. There is no trading market for the Class B Voting Common Stock.
As of April 30, 2022, 53,685,333 shares of the registrant’s Class A Non-voting Common Stock ("Class A Common Stock"), par value $.01 per share, and 2,970,171 shares of the registrant’s Class B Voting Common Stock, par value $.01 per share, were outstanding.


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EZCORP, Inc.
INDEX TO FORM 10-Q


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PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EZCORP, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)
March 31,
2022
March 31,
2021
September 30,
2021
(Unaudited)
Assets:
Current assets:
Cash and cash equivalents$254,964 $335,638 $253,667 
Restricted cash8,713 8,006 9,957 
Pawn loans173,618 125,268 175,901 
Pawn service charges receivable, net28,319 20,842 29,337 
Inventory, net119,890 86,214 110,989 
Prepaid expenses and other current assets27,267 30,676 31,010 
Total current assets612,771 606,644 610,861 
Investments in unconsolidated affiliates42,002 34,961 37,724 
Other investments18,000 — — 
Property and equipment, net50,874 51,836 53,811 
Right-of-use asset, net204,343 170,479 200,990 
Goodwill286,214 258,199 285,758 
Intangible assets, net62,145 58,125 62,104 
Notes receivable, net1,198 1,164 1,181 
Deferred tax asset, net15,908 9,693 9,746 
Other assets6,541 5,152 4,736 
Total assets $1,299,996 $1,196,253 $1,266,911 
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable, accrued expenses and other current liabilities$69,695 $69,019 $90,268 
Customer layaway deposits15,046 11,401 12,557 
Lease liability52,446 41,060 52,263 
Total current liabilities137,187 121,480 155,088 
Long-term debt, net312,168 257,143 264,186 
Deferred tax liability, net179 167 3,684 
Lease liability163,506 138,622 161,330 
Other long-term liabilities11,940 9,597 10,385 
Total liabilities624,980 527,009 594,673 
Commitments and Contingencies (Note 10)
Stockholders’ equity:
Class A Non-voting Common Stock, par value $0.01 per share; shares authorized: 100 million; issued and outstanding: 53,685,333 as of March 31, 2022; 52,873,568 as of March 31, 2021; and 53,086,438 as of September 30, 2021
537 528 530 
Class B Voting Common Stock, convertible, par value $0.01 per share; shares authorized: 3 million; issued and outstanding: 2,970,171
30 30 30 
Additional paid-in capital341,913 399,439 403,312 
Retained earnings384,246 327,798 326,781 
Accumulated other comprehensive loss(51,710)(58,551)(58,415)
Total stockholders' equity675,016 669,244 672,238 
Total liabilities and stockholders' equity$1,299,996 $1,196,253 $1,266,911 

See accompanying notes to unaudited interim condensed consolidated financial statements
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EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

Three Months Ended
March 31,
Six Months Ended
March 31,
(in thousands, except per share amount)2022202120222021
Revenues:
Merchandise sales$133,556 $115,225 $271,276 $223,008 
Jewelry scrapping sales5,690 6,075 12,634 12,834 
Pawn service charges76,683 63,436 152,708 126,925 
Other revenues, net53 203 358 307 
Total revenues215,982 184,939 436,976 363,074 
Merchandise cost of goods sold82,246 65,790 165,357 130,333 
Jewelry scrapping cost of goods sold4,808 5,401 10,580 10,603 
Net revenues128,928 113,748 261,039 222,138 
Operating expenses:
Store expenses85,743 81,149 172,514 160,458 
General and administrative12,227 13,771 27,772 26,281 
Depreciation and amortization7,450 8,089 15,024 15,661 
(Gain) loss on sale or disposal of assets and other(697)112 (692)90 
Total operating expenses104,723 103,121 214,618 202,490 
Operating income24,205 10,627 46,421 19,648 
Interest expense2,527 5,518 4,958 10,973 
Interest income(255)(585)(559)(1,406)
Equity in net loss (income) of unconsolidated affiliates1,439 (1,250)301 (1,766)
Other expense (income)371 145 251 (454)
Income before income taxes20,123 6,799 41,470 12,301 
Income tax expense5,236 1,469 10,862 2,672 
Net income$14,887 $5,330 $30,608 $9,629 
Basic earnings per share $0.26 $0.10 $0.54 $0.17 
Diluted earnings per share $0.20 $0.10 $0.42 $0.17 
Weighted-average basic shares outstanding56,561 55,661 56,370 55,509 
Weighted-average diluted shares outstanding82,407 55,665 82,270 55,511 
See accompanying notes to unaudited interim condensed consolidated financial statements
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EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
March 31,
Six Months Ended
March 31,
(in thousands)2022202120222021
Net income$14,887 $5,330 $30,608 $9,629 
Other comprehensive income:
Foreign currency translation adjustment, net of tax3,666 (1,760)6,705 9,517 
Comprehensive income$18,553 $3,570 $37,313 $19,146 
See accompanying notes to unaudited interim condensed consolidated financial statements
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EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited except for balances as of September 30, 2021 and September 30, 2020)
 Common StockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive Loss
Total Stockholders' Equity
(in thousands)SharesPar Value
Balances as of September 30, 202156,057 $560 $403,312 $326,781 $(58,415)$672,238 
Stock compensation— — 1,698 — — 1,698 
Release of restricted stock257 — — — 
Taxes paid related to net share settlement of equity awards— — (792)— — (792)
Cumulative effect of adoption of ASU 2020-06 (Note 1)— — (64,263)26,857 — (37,406)
Foreign currency translation gain— — — — 3,039 3,039 
Net income— — — 15,721 — 15,721 
Balances as of December 31, 202156,314 $563 $339,955 $369,359 $(55,376)$654,501 
Stock compensation— 460 — — 460
Transfer of consideration for other investment2131,498 — — 1,500
Release of restricted stock129— — — 2
Foreign currency translation gain— — — 3,666 3,666
Net income— — 14,887 — 14,887
Balances as of March 31, 202256,656$567 $341,913 $384,246 $(51,710)$675,016 
 Common StockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive Loss
Total Stockholders' Equity
(in thousands)SharesPar Value
Balances as of September 30, 202055,303 $551 $398,475 $318,169 $(68,068)$649,127 
Stock compensation— — 524 — — 524 
Release of restricted stock296 — — — 
Taxes paid related to net share settlement of equity awards— — (730)— — (730)
Foreign currency translation gain— — — — 11,277 11,277 
Net income— — — 4,299 — 4,299 
Balances as of December 31, 202055,599 $556 $398,269 $322,468 $(56,791)$664,502 
Stock compensation— — 1,094 — — 1,094 
Transfer of consideration for prior period acquisition33 — 185 — — 185 
Release of restricted stock212 — — — 
Taxes paid related to net share settlement of equity awards— — (109)— — (109)
Foreign currency translation loss— — — — (1,760)(1,760)
Net Income— — — 5,330 — 5,330 
Balances as of March 31, 202155,844 $558 $399,439 $327,798 $(58,551)$669,244 

See accompanying notes to unaudited interim condensed consolidated financial statements
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EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six Months Ended
March 31,
(in thousands)20222021
Operating activities:
Net income $30,608 $9,629 
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization15,024 15,661 
Amortization of debt discount and deferred financing costs698 6,754 
Amortization of lease right-of-use asset25,746 23,835 
Deferred income taxes212 (1,119)
Other adjustments(708)(250)
Provision for inventory reserve(1,780)(5,265)
Stock compensation expense2,158 1,618 
Equity in net loss (income) of unconsolidated affiliates301 (1,766)
Changes in operating assets and liabilities:
Service charges and fees receivable687 (106)
Inventory(2,779)6,481 
Prepaid expenses, other current assets and other assets88 3,874 
Accounts payable, accrued expenses and other liabilities(50,258)(43,436)
Customer layaway deposits2,342 238 
Income taxes6,576 2,573 
Dividends from unconsolidated affiliates1,660 — 
Net cash provided by operating activities30,575 18,721 
Investing activities:
Loans made(329,459)(269,468)
Loans repaid199,836 177,888 
Recovery of pawn loan principal through sale of forfeited collateral129,311 109,019 
Capital expenditures, net(10,498)(8,359)
Issuance of note receivable(1,000)— 
Investment in unconsolidated affiliates(3,577)— 
Investment in other investments(16,500)— 
Net cash (used in) provided by investing activities(31,887)9,080 
Financing activities:
Taxes paid related to net share settlement of equity awards(792)(839)
Payments on assumed debt and other borrowings— (871)
Net cash used in financing activities (792)(1,710)
Effect of exchange rate changes on cash and cash equivalents and restricted cash2,157 5,000 
Net increase in cash, cash equivalents and restricted cash53 31,091 
Cash, cash equivalents and restricted cash at beginning of period263,624 312,553 
Cash, cash equivalents and restricted cash at end of period$263,677 $343,644 
Supplemental disclosure of cash flow information
Cash and cash equivalents$254,964 $335,638 
Restricted cash8,713 8,006 
Total cash and cash equivalents and restricted cash$263,677 $343,644 
Non-cash investing and financing activities:
Pawn loans forfeited and transferred to inventory$134,562 $99,285 
Transfer of consideration for other investment1,500 — 
See accompanying notes to unaudited interim condensed consolidated financial statements
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Notes to Interim Condensed Consolidated Financial Statements
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
EZCORP, Inc. (collectively with its subsidiaries, the “Company,” “we,” “us,” or “our”) is a leading provider of pawn loans in the United States ("U.S.") and Latin America. Pawn loans are non-recourse loans collateralized by tangible property. We also sell merchandise, primarily collateral forfeited from pawn lending operations and pre-owned merchandise purchased from customers.
Basis of Presentation
The accompanying interim unaudited condensed consolidated financial statements (“Condensed Consolidated Financial Statements”) have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
These Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the year ended September 30, 2021, filed with the Securities and Exchange Commission ("SEC") on November 17, 2021 (“2021 Annual Report”).
In the opinion of management, the accompanying Condensed Consolidated Financial Statements include all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation. Financial results for the three and six-month period ended March 31, 2022, are not necessarily indicative of results that may be expected for the fiscal year ending September 30, 2022.
Our business is subject to seasonal variations, and operating results for the three and six months ended March 31, 2022 and 2021 (the "current quarter" and "prior-year quarter," respectively) are not necessarily indicative of the results of operations for the full fiscal year. There have been no changes that have had a material impact in significant accounting policies as described in our Annual Report on Form 10-K for the year ended September 30, 2021 except for as disclosed below related to the adoption of Accounting Standards Update ("ASU") 2020-06.
Principles of Consolidation
The accompanying Condensed Consolidated Financial Statements include the accounts of EZCORP, Inc. and its wholly-owned subsidiaries. We use the equity method of accounting for entities in which we have a 50% or less investment and exercise significant influence. We account for equity investments for which we do not have significant influence and without readily determinable fair values at cost with adjustments for observable changes in price in orderly transactions for identical or similar investments of the same issuer or impairments. All inter-company accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions include the determination of inventory reserves, expected credit losses, useful lives of long-lived and intangible assets, valuation of share-based compensation, valuation of equity investments, valuation of deferred tax assets and liabilities, loss contingencies related to litigation and discount rates used for operating leases. Actual results may result in actual amounts differing from reported amounts.

Impact of COVID-19
The COVID-19 pandemic continues to affect the U.S. and global economies, as disclosed in our 2021 Annual Report on Form 10-K. The full extent and duration of the COVID-19 impact on the global economy generally, and on our business specifically, is currently unknown. The impact of the pandemic, and the recovery therefrom, continued to adversely affect net revenues and earnings into fiscal 2021. During the latter part of fiscal 2021, we saw pawn transaction activity continue to rebuild, driving pawn loans outstanding ("PLO") balances closer to pre-pandemic levels, which will drive accelerating pawn service charges ("PSC") revenue in the coming quarters given the natural lag between pawn originations and related fees. We continue to assess what type of impact various COVID-19 variants may have to our business net revenues and operating expenses in fiscal year 2022. A prolonged pandemic and recovery may have an adverse effect on our results of operations, financial position and cash flows. Our estimates, judgments and assumptions related to COVID-19 could ultimately differ over time.
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Recently Adopted Accounting Policies
In August 2020, the Financial Accounting Standards Board ("FASB") issued its ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40), (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Additionally, ASU 2020-06 eliminates beneficial conversion feature and cash conversion models resulting in more convertible instruments being accounted for as a single unit. The ASU 2020-06 amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We early adopted this standard on October 1, 2021 under the modified retrospective basis.
Impact of the Adoption of ASU 2020-06
On October 1, 2021, we early adopted ASU 2020-06 on a modified retrospective basis. Under ASU 2020-06, we no longer separate the convertible senior notes into liability and equity components. We recognized the cumulative effect of initially applying this new standard as of October 1, 2021. We recognized a cumulative effect of initially applying the ASU as an adjustment to the October 1, 2021 opening balance of retained earnings. The conversion option that was previously accounted for in equity under the cash conversion model was recombined into the convertible debt outstanding, and as a result, additional paid in capital and the related unamortized debt discount on the convertible senior notes were reduced. The removal of the remaining debt discounts recorded for this previous separation has the effect of increasing our net debt balance. The prior period consolidated financial statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods.
(in thousands)As Reported
September 30, 2021
AdjustmentsUnder ASU 2020-06
October 1, 2021
Principal$316,250 $— $316,250 
Unamortized debt discount (48,785)48,785 — 
Deferred financing costs, net(3,279)(1,500)(4,779)
Net carrying amount264,186 47,285 311,471 
Deferred tax asset9,746 5,839 15,585 
Deferred tax liability3,684 (4,040)(356)
Additional paid-in capital403,312 (64,263)339,049 
Retained earnings326,781 26,857 353,638 
The impact of adoption on our condensed consolidated statements of operations for the three and six months ended March 31, 2022 was primarily to decrease interest expense by $3.4 million and $6.8 million, respectively. This had the effect of increasing our basic earnings per share for the three and six months ended March 31, 2022 by $0.05 and $0.09, and decreasing our diluted earnings per common share for the three and six months ended March 31, 2022 by $0.01 and $0.03, respectively. Additionally, adoption of the standard requires interest charges on the convertible debt to be added to net income as well as the use of the “if-converted” method to calculate diluted earnings per common share. Refer to Note 4: Earnings Per Share for a discussion of the effect of the convertible notes on diluted earnings per common share.
Recently Issued Accounting Pronouncements
We reviewed all recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a material impact on our Condensed Consolidated Financial Statements.
NOTE 2: ACQUISITIONS
On June 8, 2021, we completed the acquisition of 100% of the common shares of PLO del Bajio S. de R.L. de C.V. (“Bajio”) and gained control of the entity, further expanding our geographic footprint within Mexico with the addition of 128 pawn stores. These stores operate under the name "Cash Apoyo Efectivo" and are located principally in the Mexico City metropolitan area.
At the time of acquisition, the total consideration for Bajio was $23.6 million, consisting of $17.4 million of cash, and 212,870 shares of our Class A Non-Voting Common Stock valued at $1.6 million. In addition, the sellers are entitled to additional payments of up to $4.6 million to be paid in two payments over the next two years, contingent on the growth of the loan portfolios of the acquired stores. Up to 50% of any
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future contingent payments can be made in shares of our Class A Non-Voting Common Stock at our discretion. The value of the contingent consideration was included in the total consideration as the metrics were considered achievable on the date of acquisition. Cash paid at closing was $11.6 million and an additional $3.8 million was paid during the fourth quarter of 2021.
During the first quarter of 2022, both parties completed the formal working capital reconciliation stipulated within the purchase agreement. As part of the working capital reconciliation, the Company and the seller agreed to reduce the purchase price, which was held in restricted cash as of September 30, 2021, by $1.3 million. As the working capital adjustment was recorded as of September 30, 2021, this reduction to the purchase price is a measurement period adjustment, and resulted in a $1.3 million reduction to goodwill during the period ended December 31, 2021. This reduced the total consideration for Bajio to $22.3 million. As the future payments decreased, we released $1.3 million of the previously held $2.0 million in restricted cash to our unrestricted cash. Of the remaining $0.7 million in restricted cash, $0.3 million is expected to be paid prior to June 30, 2022, and $0.4 million is expected to be paid on or around the fifth anniversary of the date of acquisition. During the second quarter of 2022, we obtained new information about the seller's calculation of pawn service charges receivable balance as of the date of acquisition, which resulted in a $0.6 million measurement period adjustment to reduce pawn service charges receivable and increase goodwill.
The assets acquired and liabilities assumed are based upon the estimated fair values at the date of acquisition. The excess purchase price over the estimated fair market value of the new assets acquired has been recorded as goodwill.
The purchase price allocation is as follows, in thousands:
Cash and cash equivalents$308 
Pawn loans4,619 
Pawn service charges receivable691 
Inventory1,319 
Property and equipment2,025 
Right-of-use assets10,651 
Goodwill25,422 
Intangible assets3,965 
Deferred tax asset, net381 
Other assets746 
Accounts payable, accrued expenses and other liabilities(2,290)
Debt(14,931)
Lease liabilities(10,651)
Total consideration$22,255 
Intangible assets acquired consist of indefinite-lived trade names.
NOTE 3: GOODWILL
The following table summarizes the changes in the carrying amount of goodwill by segment and in total:
 
Six Months Ended March 31, 2022
(in thousands)U.S. PawnLatin America PawnConsolidated
Balances as of September 30, 2021
$244,471 $41,287 $285,758 
Measurement period adjustments— (678)(678)
Effect of foreign currency translation changes— 1,134 1,134 
Balances as of March 31, 2022$244,471 $41,743 $286,214 

 
Six Months Ended March 31, 2021
(in thousands)U.S. PawnLatin America PawnConsolidated
Balances as of September 30, 2020
$241,928 $15,654 $257,582 
Effect of foreign currency translation changes— 617 617 
Balances as of March 31, 2021
$241,928 $16,271 $258,199 


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NOTE 4: EARNINGS PER SHARE
The following table reconciles the number of common shares used to compute basic and diluted earnings per share attributable to EZCORP Inc., shareholders:
Three Months Ended
March 31,
Six Months Ended
March 31,
(in thousands, except per share amounts)2022202120222021
Basic earnings per common share:
Net income - basic $14,887 $5,330 $30,608 $9,629 
Weighted shares outstanding - basic56,561 55,66156,370 55,509 
Basic earnings per common share $0.26 $0.10 $0.54 $0.17 
Diluted earnings per common share:
Net income - basic$14,887 $5,330 $30,608 $9,629 
Add: Convertible Notes interest expense, net of tax1,846 — 3,730 — 
Net income - diluted $16,733 $5,330 $34,338 $9,629 
Weighted shares outstanding - basic56,561 55,661 56,370 55,509 
Effect of dilution from equity-based compensation awards*622 676 
Effect of dilution from if-converted Convertible Notes**25,224 — 25,224 — 
Weighted shares outstanding - diluted82,407 55,665 82,270 55,511 
Diluted earnings per common share$0.20 $0.10 $0.42 $0.17 
Potential common shares excluded from the calculation of diluted earnings per share above:
Restricted stock***1,7569641,847 831 
*    Includes time-based share-based awards and performance based awards for which targets for fiscal year tranches have been achieved and vesting is subject only to achievement of service conditions.
**    See Note 8: Debt for conversion price and initial conversion rate of the 2024 Convertible Notes and 2025 Convertible Notes.
***    Includes antidilutive share-based awards as well as performance-based share-based awards that are contingently issuable, but for which the condition for issuance has not been met as of the end of the reporting period.
As a result of our adoption of ASU 2020-06 on October 1, 2021, the dilutive impact of the Convertible Notes for our calculation of diluted net income per share is considered using the if-converted method. During the three months and six months ended March 31, 2022, we increased net income by $1.8 million and $3.7 million respectively to arrive at the numerator used to calculate diluted earnings per common share, which represents interest expense recognized on the convertible notes that were subject to this change in methodology. For periods prior to our October 1, 2021 adoption of ASU 2020-06, we applied the treasury stock method to account for the dilutive impact of the 2024 and 2025 Convertible Notes for diluted earnings per share purposes.
NOTE 5: LEASES
We determine if a contract contains a lease at inception. Our lease portfolio consists primarily of operating leases for pawn store locations and corporate offices with lease terms ranging from three to ten years.
The information below provides a summary of our leasing activities. See Note 12: Leases in our 2021 Annual Report for additional information about our leasing activities. The table below presents balances of our operating leases:

(in thousands)March 31, 2022March 31, 2021
September 30,
2021
Right-of-use asset$204,343 $170,479 $200,990 
Lease liability, current$52,446 $41,060 $52,263 
Lease liability, non-current163,506 138,622 161,330 
Total lease liability$215,952 $179,682 $213,593 
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The table below provides the composition of our lease costs:
Three Months Ended
March 31,
Six Months Ended
March 31,
(in thousands)2022202120222021
Operating lease expense*$16,789 $14,616 $33,151 $29,815 
Variable lease expense3,834 2,064 7,376 4,243 
Total lease expense$20,623 $16,680 $40,527 $34,058 
* Includes a reduction for sublease rental income.

Lease expense is recognized on a straight-line basis over the lease term with variable lease expense recognized in the period in which the costs are incurred. The components of lease expense are included in "Store" and "General and Administrative" expense, based on the underlying lease use.
Other supplemental information includes the following for our operating leases:
Six Months Ended
March 31,
20222021
Weighted-average remaining contractual lease term (years)
5.005.07
Weighted-average incremental borrowing rate 8.27 %7.88 %

Maturities of lease liabilities as of March 31, 2022 were as follows (in thousands):
Remaining 2022$34,749 
Fiscal 2023
62,161 
Fiscal 2024
49,882 
Fiscal 2025
39,081 
Fiscal 2026
29,380 
Thereafter47,828 
Total lease payments$263,081 
Less: Portion representing interest47,129 
Present value of operating lease liabilities$215,952 
Less: Current portion52,446 
Non-current portion$163,506 

We recorded $28.1 million and $6.6 million in non-cash additions to our right of use assets and lease liabilities for the six months ended March 31, 2022 and March 31, 2021, respectively.
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NOTE 6: STRATEGIC INVESTMENTS
Cash Converters International Limited
On October 1, 2021, we purchased an additional 13 million shares of Cash Converters International Limited ("Cash Converters") for $2.5 million. This purchase increased our total ownership in Cash Converters to 236,702,991 shares, representing a 37.72% ownership interest. Additionally, on October 14, 2021, we received a cash dividend of $1.7 million from Cash Converters.
On March 10, 2022, we purchased an additional 5.5 million shares of Cash Converters for $1.0 million. This purchase increased our total ownership in Cash Converters to 242,239,157 shares, representing a 38.60% ownership interest.
On April 5, 2022 (subsequent to the end of the quarter), we acquired an additional 13 million shares for $2.5 million, bringing our total ownership to 255,239,157 shares, representing an ownership interest of 40.67%. Additionally, on April 14, 2022, we received a cash dividend of $1.8 million from Cash Converters. See Note 13: Subsequent Events.
The following tables present summary financial information for Cash Converters most recently reported results at December 31, 2021 after translation to U.S. dollars:
 December 31,
(in thousands)20212020
Current assets$162,558 $170,412 
Non-current assets185,780 189,810 
Total assets$348,338 $360,222 
Current liabilities$59,701 $59,962 
Non-current liabilities59,915 58,368 
Shareholders’ equity228,722 241,892 
Total liabilities and shareholders’ equity$348,338 $360,222 

 
Half-Year Ended December 31,
(in thousands)20212020
Gross revenues$84,185 $71,153 
Gross profit55,280 51,231 
Net profit (loss)5,561 
See Note 7: Fair Value Measurements for the fair value and carrying value of our investment in Cash Converters.
Founders One, LLC
In October 2021, we invested $15.0 million in exchange for a non-redeemable voting participating preferred equity interest in Founders One, LLC (“Founders”), a newly-formed entity with one other member. Founders used that $15.0 million to acquire an equity interest in Simple Management Group, Inc. (“SMG”), which owns and operates more than 20 pawn stores principally in the Caribbean region, with plans to build and acquire more stores in that region. The investment in Founders is a variable interest entity, but because the Company is not the primary beneficiary, we do not consolidate it. Further, as we are not the appointed manager, we do not have the ability to direct the activities of the investment entity that most significantly impact its economic performance. Consequently, our investment in Founders is accounted for utilizing the measurement alternative within ASC 321, Investments — Equity Securities. Our $15.0 million carrying value of the investment is included in “Other Investments” in our consolidated balance sheets. Our maximum exposure for losses in this investment is its contributed investment of $15.0 million.
See Note 7: Fair Value Measurements for the fair value and carrying value of our investment in Founders.
NOTE 7: FAIR VALUE MEASUREMENTS
The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:
Level 1 — Quoted market prices in active markets for identical assets or liabilities.
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Level 2 — Other observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3 — Unobservable inputs that are not corroborated by market data.
We have elected not to measure at fair value any eligible items for which fair value measurement is optional.
There were no transfers in or out of Level 1, Level 2 or Level 3 for financial assets or liabilities measured at fair value on a recurring basis during the periods presented.
Financial Assets and Liabilities Not Measured at Fair Value
The tables below present our estimates of fair value of financial assets and liabilities that were not measured at fair value:
Carrying ValueEstimated Fair Value
 March 31, 2022March 31, 2022Fair Value Measurement Using
(in thousands)Level 1Level 2Level 3
Financial assets:
2.89% promissory note receivable due April 2024
$1,198 $1,198 $— $— $1,198 
Investments in unconsolidated affiliates42,002 51,502 44,529 — 6,973 
Other investments18,000 18,000 — — 18,000 
Financial liabilities:
2024 Convertible Notes$142,248 $141,594 $— $141,594 $— 
2025 Convertible Notes169,920 153,525 — 153,525 — 
Carrying ValueEstimated Fair Value
 March 31, 2021March 31, 2021Fair Value Measurement Using
(in thousands)Level 1Level 2Level 3
Financial assets:
2.89% promissory note receivable due April 2024
$1,164 $1,164 $— $— $1,164 
Investments in unconsolidated affiliates34,961 45,581 37,984 — 7,597 
Financial liabilities:
2024 Convertible Notes$120,307 $132,609 $— $132,609 $— 
2025 Convertible Notes136,836 143,175 — 143,175 — 
Carrying ValueEstimated Fair Value
 
September 30,
2021
September 30, 2021
Fair Value Measurement Using
(in thousands)Level 1Level 2Level 3
Financial assets:
2.89% promissory note receivable due April 2024
$1,181 $1,181 $— $— $1,181 
Investments in unconsolidated affiliates37,724 48,954 41,638 — 7,316 
Financial liabilities:
2024 Convertible Notes$123,543 $153,281 $— $153,281 $— 
2025 Convertible Notes140,643 155,250 — 155,250 — 
Due to the short-term nature of cash and cash equivalents, pawn loans, pawn service charges receivable and other debt, we estimate that the carrying value approximates fair value. We consider our cash and cash equivalents to be measured using Level 1 inputs and our pawn loans, pawn service charges receivable and other debt to be measured using Level 3 inputs. Significant increases or decreases in the underlying assumptions used to value pawn loans, pawn service charges receivable, consumer loans, fees and interest receivable and other debt could significantly increase or decrease these fair value estimates.
Included in “Accounts payable, accrued expenses and other current liabilities“ in our Consolidated Balance Sheets as of March 31, 2022 is $4.6 million which represents the fair value of acquisition-related contingent consideration as discussed in Note 2: Acquisitions. The key assumptions used to determine the fair value of acquisition-related contingent consideration are estimated by management, not observable in the market and, therefore considered Level 3 inputs within the fair value hierarchy.
In March 2019, we received $1.1 million in previously escrowed seller funds as a result of settling certain indemnification claims with the seller of GPMX. In April 2019, we loaned the $1.1 million back to the seller of GPMX in exchange for a promissory note. The note bears interest at the rate of 2.89% per annum and is secured by certain marketable securities owned by the seller and held in a U.S. brokerage
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account. All principal and accrued interest is due and payable in April 2024. The fair value of the note approximated its carrying value as of March 31, 2022.
We use the equity method of accounting to account for our ownership interest in Cash Converters. The inputs used to generate the fair value of the investment in Cash Converters were considered Level 1 inputs. These inputs consist of (a) the quoted stock price on the Australian Stock Exchange multiplied by (b) the number of shares we owned multiplied by (c) the applicable foreign currency exchange rate as of the end of our reporting period. We included no control premium for owning a large percentage of outstanding shares.
We use the equity method of accounting to account for our 13.14% ownership in Rich Data Corporation ("RDC"), a previously consolidated variable interest entity for which we no longer have the power to direct the activities that most significantly affect its economic performance. We believe its fair value approximated carrying value although such fair value is highly variable and includes significant unobservable inputs.
Of the $18.0 million included in the table above, $15.0 million is related the investment in Founders. We believe the investment's fair value approximated it's carrying value although such fair value is highly variable and includes significant unobservable inputs.
We measured the fair value of the 2024 and 2025 Convertible Notes using quoted price inputs. The notes are not actively traded, and thus the price inputs represent a Level 2 measurement. As the quoted price inputs are highly variable from day to day, the fair value estimates disclosed above could significantly increase or decrease.
In September 2020, we received the final payment from AlphaCredit on the notes receivable related to the sale of Grupo Finmart and recorded the amount under “Restricted cash” in our consolidated balance sheet as of March 31, 2022. In August 2019, AlphaCredit notified us of an indemnity claim for certain pre-closing taxes, but the nature, extent and validity of such claim has yet to be determined.
NOTE 8: DEBT
The Company adopted ASU 2020-06 on October 1, 2021. See Note 1: Organization And Summary Of Significant Accounting Policies for further discussion of this recently adopted accounting policy.
The following table presents the Company's debt instruments outstanding:
 March 31, 2022March 31, 2021
September 30, 2021
(in thousands)Gross AmountDebt Issuance CostsCarrying AmountGross AmountDebt Discount and Issuance CostsCarrying AmountGross AmountDebt Discount and Issuance CostsCarrying Amount
2024 Convertible Notes$143,750 $(1,502)$142,248 $143,750 $(23,443)$120,307 $143,750 $(20,207)$123,543 
2025 Convertible Notes172,500 (2,580)169,920 172,500 (35,664)136,836 172,500 (31,857)140,643 
Total long-term debt$316,250 $(4,082)$312,168 $316,250 $(59,107)$257,143 $316,250 $(52,064)$264,186 
The following table presents the Company's contractual maturities related to the debt instruments as of March 31, 2022:
 Schedule of Contractual Maturities
(in thousands)TotalLess Than 1 Year1 - 3 Years3 - 5 YearsMore Than 5 Years
2024 Convertible Notes$143,750 $— $143,750 $— $— 
2025 Convertible Notes172,500 — — 172,500 — 
$316,250 $— $143,750 $172,500 $— 

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The following table presents the Company's interest expense related to the Convertible Notes for the three and six months ended March 31, 2022 and 2021:
Three Months Ended
March 31,
Six Months Ended
March 31,
(in thousands)2022202120222021
2024 Convertible Notes:
Contractual interest expense$1,033 $1,033 $2,066 $2,066 
Amortization of deferred financing costs142 111 309 223 
Amortization of debt discount— 1,461 — 2,891 
Total interest expense$1,175 $2,605 $2,375 $5,180 
2025 Convertible Notes:
Contractual interest expense$1,024 $1,024 $2,048 $2,048 
Amortization of deferred financing costs182 141 389 281 
Amortization of debt discount— 1,712 — 3,391 
Total interest expense$1,206 $2,877 $2,437 $5,720 
2.875% Convertible Senior Notes Due 2024
In July 2017, we issued $143.75 million aggregate principal amount of 2.875% Convertible Senior Notes Due 2024 (the “2024 Convertible Notes”). The 2024 Convertible Notes were issued pursuant to an indenture dated July 5, 2017 (the "2017 Indenture") by and between the Company and Wells Fargo Bank, National Association, as the original trustee. Effective October 1, 2019, Truist (formerly BB&T) assumed the duties and responsibilities as trustee under the 2017 Indenture. The 2024 Convertible Notes were issued in a private offering under Rule 144A under the Securities Act of 1933. The 2024 Convertible Notes pay interest semi-annually in arrears at a rate of 2.875% per annum on January 1 and July 1 of each year, commencing January 1, 2018, and mature on July 1, 2024 (the "2024 Maturity Date"), unless converted, redeemed or repurchased in accordance with the terms prior to such date. At maturity, the holders of the 2024 Convertible Notes will be entitled to receive cash equal to the principal of the 2024 Convertible Notes plus accrued interest.
The effective interest rate for the three and six months months ended March 31, 2022 was approximately 3.35%. As of March 31, 2022, the remaining unamortized debt issuance costs will be amortized using the effective interest method through the 2024 Maturity Date assuming no early conversion.
The 2024 Convertible Notes are convertible based on an initial conversion rate of 100 shares of Class A Common Stock per $1,000 principal amount (equivalent to an initial conversion price of $10.00 per share). The conversion rate will not be adjusted for any accrued and unpaid interest. The 2024 Convertible Notes contain certain make-whole fundamental change premiums and customary anti-dilution adjustments. Upon conversion, we may settle in cash, shares of Class A Common Stock or any combination thereof, at our election.
Prior to January 1, 2024, the 2024 Convertible Notes will be convertible only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on September 30, 2017 (and only during such fiscal quarter), if the last reported sale price of our Class A Common Stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price, as defined in the 2017 Indenture, per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our Class A Common Stock and the conversion rate on such trading day; (3) if we call any or all of the 2024 Convertible Notes for redemption, at any time prior to the close of business on the business day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events, as defined in the 2017 Indenture. On or after January 1, 2024 until the close of business on the business day immediately preceding the 2024 Maturity Date, holders of 2024 Convertible Notes may, at their option, convert their 2024 Convertible Notes at any time, regardless of the foregoing circumstances.
At our option, we may redeem for cash all or any portion of the 2024 Convertible Notes on or after July 6, 2021, if the last reported sale price of the Class A Common Stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption. The redemption price will be equal to 100% of the principal amount of the 2024 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
The stock trading price condition and other triggers are measured on a quarter-by-quarter basis and were not met as of March 31, 2022. As of March 31, 2022, the if-converted value of the 2024 Convertible Notes did not exceed the principal amount.
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2.375% 2025 Convertible Senior Notes Due 2025
In May 2018, we issued $172.5 million aggregate principal amount of 2.375% Convertible Senior Notes Due 2025 (the “2025 Convertible Notes”). The 2025 Convertible Notes were issued pursuant to an indenture dated May 14, 2018 (the "2018 Indenture") by and between the Company and Wells Fargo Bank, National Association, as the original trustee. Effective October 1, 2019, Truist (formerly BB&T) assumed the duties and responsibilities as trustee under the 2018 Indenture. The 2025 Convertible Notes were issued in a private offering under Rule 144A under the Securities Act of 1933. The 2025 Convertible Notes pay interest semi-annually in arrears at a rate of 2.375% per annum on May 1 and November 1 of each year, commencing November 1, 2018, and mature on May 1, 2025 (the "2025 Maturity Date"), unless converted, redeemed or repurchased in accordance with the terms prior to such date.

The effective interest rate for the three and six months months ended March 31, 2022 was approximately 2.88% for the 2025 Convertible Notes. As of March 31, 2022, the remaining unamortized debt issuance costs will be amortized using the effective interest method through the 2025 Maturity Date assuming no early conversion.

The 2025 Convertible Notes are convertible based on an initial conversion rate of 62.8931 shares of Class A Common Stock per $1,000 principal amount (equivalent to an initial conversion price of $15.90 per share). The conversion rate will not be adjusted for any accrued and unpaid interest. The 2025 Convertible Notes contain certain make-whole fundamental change premiums and customary anti-dilution adjustments. Upon conversion, we may settle in cash, shares of Class A Common Stock or any combination thereof, at our election.

Prior to November 1, 2024, the 2025 Convertible Notes are convertible only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ended on June 30, 2018 (and only during such fiscal quarter), if the last reported sale price of our Class A Common Stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price, as defined in the 2018 Indenture, per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our Class A Common Stock and the conversion rate on such trading day; (3) if we call any or all of the 2025 Convertible Notes for redemption, at any time prior to the close of business on the business day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events, as defined in the 2018 Indenture. On or after November 1, 2024 until the close of business on the business day immediately preceding the 2025 Maturity Date, holders of 2025 Convertible Notes may, at their option, convert their 2025 Convertible Notes at any time, regardless of the foregoing circumstances.

We may not redeem the 2025 Convertible Notes prior to May 1, 2022. At our option, we may redeem for cash all or any portion of the 2025 Convertible Notes on or after May 1, 2022, if the last reported sale price of the Class A Common Stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption. The redemption price will be equal to 100% of the principal amount of the 2025 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
The stock trading price condition and other triggers are measured on a quarter-by-quarter basis and were not met as of March 31, 2022. As of March 31, 2022, the if-converted value of the 2025 Convertible Notes did not exceed the principal amount.
NOTE 9: COMMON STOCK AND STOCK COMPENSATION
Share Repurchase Program
In December 2019, the Company's Board of Directors (the "Board") authorized the repurchase of up to $60.0 million of our Class A Common Stock over three years. During fiscal 2020, we repurchased and retired 943,149 shares of our Class A Common Stock for $5.2 million, which was allocated between "Additional paid-in capital" and "Retained earnings" in our condensed consolidated balance sheets. Repurchases under the program were suspended in March 2020 in order to preserve liquidity as a result of uncertainties related to the COVID-19 pandemic and no further share repurchases have been made since March of 2020.
On May 3, 2022, the Board approved a new share repurchase program, which will replace the previous program that was suspended in March 2020. Note 13: Subsequent Events.
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Stock Compensation
We maintain a Board-approved incentive plan to retain the services of our valued officers, directors and employees and to incentivize such persons to make contributions to our company and motivate excellent performance (the "Incentive Plan"). Under the Incentive Plan, we grant awards of restricted stock or restricted stock units to employees and non-employee directors. Awards granted to employees are typically subject to performance and service conditions. Awards granted to non-employee directors are time-based awards subject only to service conditions. Awards granted under the Incentive Plan are measured at the grant date fair value with compensation costs associated with the awards recognized over the requisite service period, usually the vesting period, on a straight-line basis.
The following table presents a summary of stock compensation activity:
SharesWeighted
Average
Grant Date
Fair Value
Outstanding as of September 30, 2021
2,218,777 $4.86 
Granted 1,362,750 7.37 
Released (a)
(486,627)4.77 
Cancelled(711,844)6.47 
Outstanding as of March 31, 2022
2,383,056 $6.30 
(a) 101,103 shares were withheld to satisfy related income tax withholding.
NOTE 10: CONTINGENCIES
Currently, and from time to time, we are involved in various claims, disputes, lawsuits, investigations, and legal and regulatory proceedings, including the matter described below. We accrue for contingencies if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because these matters are inherently unpredictable and unfavorable developments or resolutions can occur, assessing contingencies requires judgments and is highly subjective about future events, and the amount of resulting loss may differ from these estimates. Except as noted below, we do not believe the resolution of any particular matter will have a material adverse effect on our financial condition, results of operations or liquidity.
On October 14, 2021, Andrew Kowlessar filed an action in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida styled Andrew Kowlessar, individually and on behalf of all others similarly situated vs. EZCORP, Inc. d/b/a Value Pawn & Jewelry (Case No. CACE-21-018864). The matter subsequently was amended and removed to the United States District Court of the Southern District of Florida as Andrew Kowlessar, individually and on behalf of all others similarly situated vs. EZPAWN Florida, Inc. d/b/a Value Pawn & Jewelry (Case No. 0:21-cv-62362-RKA). The amended complaint is brought under Section 501.059, Florida Statutes, the Florida Telephone Solicitation Act (“Act”), and alleges certain text messages were sent in violation of the Act. The matter currently involves claims by a single individual, but alleges a class of persons who may have similar claims of violations of the Act and seeks class certification. The parties are conducting discovery and are scheduled to conduct certain pre-trial mediation discussions. We intend to defend vigorously against all claims, whether asserted individually or as a representative of any class. We have not recorded a liability for this matter as of March 31, 2022. An unfavorable resolution could have a material adverse effect on our results of operations for the period in which such resolution is recorded.
NOTE 11: SEGMENT INFORMATION
Our operations are primarily managed on a geographical basis and are comprised of three reportable segments. The factors for determining our reportable segments include the manner in which our chief operating decision maker ("CODM") evaluates performance for purposes of allocating resources and assessing performance.
We currently report our segments as follows:
U.S. Pawn — all pawn activities in the United States;
Latin America Pawn — all pawn activities in Mexico and other parts of Latin America; and
Other Investments — primarily our equity interest in the net results of Cash Converters and RDC along with our investment in Founders.
There are no inter-segment revenues presented below, and the amounts below were determined in accordance with the same accounting principles used in our condensed consolidated financial statements.
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The following tables present revenue for each reportable segment, disaggregated revenue within our three reportable segments and Corporate, segment profits and segment contribution.
 
Three Months Ended March 31, 2022
(in thousands)U.S. PawnLatin America PawnOther InvestmentsTotal SegmentsCorporate ItemsConsolidated
Revenues:
Merchandise sales$100,064 $33,492 $— $133,556 $— $133,556 
Jewelry scrapping sales3,480 2,210 — 5,690 — 5,690 
Pawn service charges58,772 17,911 — 76,683 — 76,683 
Other revenues24 — 29 53 — 53 
Total revenues162,340 53,613 29 215,982 — 215,982 
Merchandise cost of goods sold58,613 23,633 — 82,246 — 82,246 
Jewelry scrapping cost of goods sold2,798 2,010 — 4,808 — 4,808 
Net revenues100,929 27,970 29 128,928 — 128,928 
Segment and corporate expenses (income):
Store expenses64,492 21,251 — 85,743 — 85,743 
General and administrative— — — — 12,227 12,227 
Depreciation and amortization2,625 1,891 — 4,516 2,934 7,450 
Gain on sale or disposal of assets and other— (9)— (9)(688)(697)
Interest expense— — — — 2,527 2,527 
Interest income— (255)— (255)— (255)
Equity in net loss of unconsolidated affiliates— — 1,439 1,439 — 1,439 
Other expense— 334 342 29 371 
Segment contribution (loss)$33,812 $4,758 $(1,418)$37,152 
Income (loss) before income taxes$37,152 $(17,029)$20,123 


 
Three Months Ended March 31, 2021
(in thousands)U.S. PawnLatin America PawnOther InvestmentsTotal SegmentsCorporate ItemsConsolidated
Revenues:
Merchandise sales$93,827 $21,398 $— $115,225 $— $115,225 
Jewelry scrapping sales3,581 2,494 — 6,075 — 6,075 
Pawn service charges49,577 13,859 — 63,436 — 63,436 
Other revenues29 — 174 203 — 203 
Total revenues147,014 37,751 174 184,939 — 184,939 
Merchandise cost of goods sold51,812 13,978 — 65,790 — 65,790 
Jewelry scrapping cost of goods sold3,149 2,252 — 5,401 — 5,401 
Net revenues92,053 21,521 174 113,748 — 113,748 
Segment and corporate expenses (income):
Store expenses63,657 17,492 — 81,149 — 81,149 
General and administrative— — — — 13,771 13,771 
Depreciation and amortization2,636 1,793 — 4,429 3,660 8,089 
Loss on sale or disposal of assets and other— 101 — 101 11 112 
Interest expense— — — — 5,518 5,518 
Interest income— (571)— (571)(14)(585)
Equity in net income of unconsolidated affiliates— — (1,250)(1,250)— (1,250)
Other expense— 85 94 51 145 
Segment contribution $25,760 $2,621 $1,415 $29,796 
Income (loss) before income taxes$29,796 $(22,997)$6,799 

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 Six Months Ended March 31, 2022
(in thousands)U.S. PawnLatin America PawnOther InvestmentsTotal SegmentsCorporate ItemsConsolidated
Revenues:
Merchandise sales$202,142 $69,134 $— $271,276 $— $271,276 
Jewelry scrapping sales8,460 4,174 — 12,634 — 12,634 
Pawn service charges115,329 37,379 — 152,708 — 152,708 
Other revenues46 240 72 358 — 358 
Total revenues325,977 110,927 72 436,976 — 436,976 
Merchandise cost of goods sold116,445 48,912 — 165,357 — 165,357 
Jewelry scrapping cost of goods sold6,773 3,807 — 10,580 — 10,580 
Net revenues202,759 58,208 72 261,039 — 261,039 
Segment and corporate expenses (income):
Store expenses129,181 43,333 — 172,514 — 172,514 
General and administrative— — — — 27,772 27,772 
Depreciation and amortization5,295 3,871 — 9,166 5,858 15,024 
Gain on sale or disposal of assets and other— (4)— (4)(688)(692)
Interest expense— — — — 4,958 4,958 
Interest income— (437)— (437)(122)(559)
Equity in net loss of unconsolidated affiliates— — 301 301 — 301 
Other expense (income)— 200 (4)196 55 251 
Segment contribution (loss)$68,283 $11,245 $(225)$79,303 
Income (loss) before income taxes$79,303 $(37,833)$41,470 

 Six Months Ended March 31, 2021
(in thousands)U.S. PawnLatin America PawnOther InvestmentsTotal SegmentsCorporate ItemsConsolidated
Revenues:
Merchandise sales$176,080 $46,928 $— $223,008 $— $223,008 
Jewelry scrapping sales7,585 5,249 — 12,834 — 12,834 
Pawn service charges99,797 27,128 — 126,925 — 126,925 
Other revenues51 249 307 — 307 
Total revenues283,513 79,312 249 363,074 — 363,074 
Merchandise cost of goods sold99,871 30,462 — 130,333 — 130,333 
Jewelry scrapping cost of goods sold5,993 4,610 — 10,603 — 10,603 
Other cost of revenues— — — — — 
Net revenues177,649 44,240 249 222,138 — 222,138 
Segment and corporate expenses (income):
Store expenses125,749 34,709 — 160,458 — 160,458 
General and administrative— — — — 26,281 26,281 
Depreciation and amortization5,372 3,653 — 9,025 6,636 15,661 
Loss on sale or disposal of assets and other27 — — 27 63 90 
Interest expense— — — — 10,973 10,973 
Interest income— (1,335)— (1,335)(71)(1,406)
Equity in net income of unconsolidated affiliates— — (1,766)(1,766)— (1,766)
Other (income) expense— (370)(201)(571)117 (454)
Segment contribution $46,501 $7,583 $2,216 $56,300 
Income (loss) before income taxes$56,300 $(43,999)$12,301 



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The following table presents separately identified net earning assets by segment:
(in thousands)U.S. PawnLatin America PawnOther
Investments
Corporate ItemsTotal
As of March 31, 2022
Pawn loans$133,515 $40,103 $— $— $173,618 
Inventory, net93,320 26,570 — — 119,890 
As of March 31, 2021
Pawn loans$95,369 $29,899 $— $— 125,268 
Inventory, net69,782 16,432 — — 86,214 
NOTE 12: SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION
The following table provides supplemental information on net amounts included in our condensed consolidated balance sheets:
(in thousands)March 31, 2022March 31, 2021
September 30,
2021
Gross pawn service charges receivable$35,886 $26,607 $37,360 
Allowance for uncollectible pawn service charges receivable(7,567)(5,765)(8,023)
Pawn service charges receivable, net$28,319 $20,842 $29,337 
Gross inventory$123,944 $93,470 $115,300 
Inventory reserves(4,054)(7,256)(4,311)
Inventory, net$119,890 $86,214 $110,989 
Prepaid expenses and other$10,245 $7,881 $5,386 
Accounts receivable and other8,255 8,442 9,322 
Income taxes receivable8,767 14,353 16,302 
Prepaid expenses and other current assets$27,267 $30,676 $31,010 
Property and equipment, gross$293,087 $273,513 $284,867 
Accumulated depreciation(242,213)(221,677)(231,056)
Property and equipment, net$50,874 $51,836 $53,811 
Accounts payable$17,756 $17,957 $22,462 
Accrued payroll8,631 8,867 9,093 
Incentive accrual8,196 6,682 16,868 
Other payroll related expenses7,877 12,187 10,695 
Accrued sales and VAT taxes8,022 9,064 10,936 
Accrued income taxes payable4,346 2,271 3,826 
Other current liabilities14,867 11,991 16,388 
Accounts payable, accrued expenses and other current liabilities$69,695 $69,019 $90,268 

NOTE 13: SUBSEQUENT EVENTS
Share Repurchase Program
On May 3, 2022, the Board of Directors approved a new share repurchase program, which will replace the previous program that was suspended in March 2020 at the onset of the COVID-19 pandemic. See Note 9: Share-Based Compensation — Common Stock Repurchase Program. Under the new program, the Company is authorized to repurchase up to $50 million of our Class A Non-Voting common shares over the next three years. Execution of the program will be responsive to fluctuating market conditions and valuations, liquidity needs and the expected return on investment compared to other opportunities.
The amount and timing of purchases will be dependent on a variety of factors, including stock price, trading volume, general market conditions, legal and regulatory requirements, general business conditions, the level of cash flows, and corporate considerations determined
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by management and the Board, such as liquidity and capital needs and the availability of attractive alternative investment opportunities. The Board of Directors has reserved the right to modify, suspend or terminate the program at any time.
Purchase Additional Shares of Cash Converters
On April 5, 2022, we purchased an additional 13 million shares of Cash Converters for $2.5 million. This purchase increased our total ownership in Cash Converters to 255,239,157 shares, representing an ownership interest of 40.67%. Additionally, in April 2022, we received a cash dividend of $1.8 million from Cash Converters.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to inform the reader about matters affecting the financial condition and results of operations of EZCORP, Inc. and its subsidiaries (collectively, “we,” “us”, “our”, "EZCORP" or the “Company”). The following discussion should be read together with our condensed consolidated financial statements and related notes included elsewhere within this report. This discussion contains forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements. See "Part I, Item 1A — Risk Factors" of our Annual Report on Form 10-K for the year ended September 30, 2021, as supplemented by the information set forth in “Part I, Item 3 — Quantitative and Qualitative Disclosures about Market Risk” and "Part II, Item 1A — Risk Factors" of this Report, for a discussion of certain risks, uncertainties and assumptions associated with these statements.
Business Overview
EZCORP is a Delaware corporation headquartered in Austin, Texas. We are a leading provider of pawn services in the United States and Latin America. Pawn loans are nonrecourse loans collateralized by personal property. We also sell merchandise, primarily collateral forfeited from unpaid loans or goods purchased directly from customers.
We exist to serve our customers’ short-term cash needs, helping them to live and enjoy their lives. We are focused on three strategic pillars:
Strengthen the CoreRelentless focus on superior execution and operational excellence in our core pawn business
Cost Efficiency and SimplificationShape a culture of cost efficiency through ongoing focus on simplification and optimization
Innovate and GrowBroaden customer engagement to service more customers more frequently in more locations
Pawn Activities
At our pawn stores, we advance cash against the value of collateralized tangible personal property. We earn pawn service charges (“PSC”) for those cash advances, and the PSC rate varies by state and transaction size. At the time of the transaction, we take possession of the pawned collateral, which consists of tangible personal property, generally jewelry, consumer electronics, tools, sporting goods and musical instruments. If the customer chooses to redeem their pawn, they will repay the amount advanced plus any accrued PSC. If the customer chooses not to redeem their pawn, the pawned collateral becomes our inventory, which we sell in our retail merchandise sales activities or, in some cases, scrap for its inherent gold or precious stone content. Consequently, the success of our pawn business is largely dependent on our ability to accurately assess the probability of pawn redemption and the estimated resale or scrap value of the collateralized personal property.
Our ability to offer quality second-hand goods at prices significantly lower than original retail prices attracts value-conscious customers. The gross profit on sales of inventory depends primarily on our assessment of the estimated resale or scrap value at the time the property is either accepted as pawn collateral or purchased and our ability to sell that merchandise in a timely manner. As a significant portion of our inventory and sales involve gold and jewelry, our results can be influenced by the market price of gold and diamonds.
Growth and Expansion
Our strategy is to expand the number of locations we operate through opening new (“de novo”) locations and through acquisitions and investments in both Latin America, the United States and potential new markets. Our ability to open de novo stores, acquire new stores and make other related investments is dependent on several variables, such as projected achievement of internal investment hurdles, the availability of acceptable sites or acquisition candidates, the alignment of acquirer/seller price expectations, the regulatory environment, local zoning ordinances, access to capital and the availability of qualified personnel.
Seasonality and Quarterly Results
In the United States, PSC is historically highest in our fourth fiscal quarter (July through September) due to a higher average loan balance during the summer lending season. PSC is historically lowest in our third fiscal quarter (April through June) following the tax refund season and merchandise sales are highest in our first and second fiscal quarters (October through March) due to the holiday season, jewelry sales
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surrounding Valentine’s Day and the availability of tax refunds. In Latin America, most of our customers receive additional compensation from their employers in December, and many receive additional compensation in June or July, applying downward pressure on loan balances and fueling some merchandise sales in those periods. As a net effect of these and other factors and excluding discrete charges, our consolidated profit before tax is generally highest in our first fiscal quarter (October through December) and lowest in our third fiscal quarter (April through June). These historical trends have been impacted by COVID-19, but we expect these historical trends to return in the future.
Financial Highlights
We remain focused on optimizing our balance of pawn loans outstanding (“PLO”) and the resulting higher PSC. The following chart presents sources of net revenues, including PSC, merchandise sales gross profit ("Merchandise sales GP") and jewelry scrapping gross profit ("Jewelry Scrapping GP") for the three and six months ended March 31, 2022 and 2021:
ezpw-20220331_g2.jpg
The following chart presents sources of net revenues by geographic disbursement for the three and six months ended March 31, 2022 and 2021:
ezpw-20220331_g3.jpg

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Business Developments
COVID-19
The COVID-19 pandemic continues to affect the U.S. and global economies, as disclosed in our 2021 Annual Report on Form 10-K. The full extent and duration of the COVID-19 impact on the global economy generally, and on our business specifically, is currently unknown. The impact of the pandemic, and the recovery therefrom, continued to adversely effect net revenues and earnings into fiscal 2021. During the latter part of fiscal 2021, we saw pawn transaction activity continue to rebuild, driving PLO balances closer to pre-pandemic levels, which will drive accelerating PSC revenue in the coming quarters given the natural lag between pawn originations and related fees. We continue to assess what type of impact various COVID-19 variants may have to our business net revenues and operating expenses in fiscal year 2022. A prolonged pandemic and recovery may have an adverse effect on our results of operations, financial position and liquidity in future periods.
Share Repurchase Program
On May 3, 2022, the Company's Board of Directors approved a new share repurchase program, which will replace the previous program that was suspended in March 2020. Under the new program, the Company is authorized to repurchase up to $50 million of its outstanding Class A Non-Voting common share over the next three years. "Liquidity and Capital Resources — Sources and Uses of Cash" below.
Investments in Unconsolidated Entities
On March 10, 2022, we purchased an additional 5.5 million shares of Cash Converters for $1.0 million. This purchase increased our total ownership in Cash Converters to 242,239,157 shares, representing a 38.60% ownership interest. On April 5, 2022, we acquired an additional 13 million shares for $2.5 million, bringing our total ownership to 255,239,157 shares, representing an ownership interest of 40.67%. Additionally, on April 14, 2022, we received a cash dividend of $1.8 million from Cash Converters.
Executive Management Changes
On March 3, 2022, Lachlan P. Given was appointed Chief Executive Officer (principal executive officer) and John Blair Powell, Jr. was appointed Chief Operating Officer (principal operating officer). Mr. Given and Mr. Powell had been serving as Co-Interim Chief Executive Officers (co-principal executive officers) since January 12, 2022. A description of Mr. Given's and Mr. Powell's respective backgrounds and experiences can be found in "Part III, Item 10 — Directors, Officers and Corporate Governance — Executive Officers" of the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2021.
Results of Operations
Non-GAAP Constant Currency and Same Store Financial Information
To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide certain other non-GAAP financial information on a constant currency basis ("constant currency") and "same store" basis. We use constant currency results to evaluate our Latin America Pawn operations, which are denominated primarily in Mexican pesos, Guatemalan quetzales and other Latin American currencies. We analyze results on a same store basis (which is defined as stores open during the entirety of the comparable periods) to better understand existing store performance without the influence of increases or decreases resulting solely from changes in store count. We believe presentation of constant currency and same store results is meaningful and useful in understanding the activities and business metrics of our Latin America Pawn operations and reflect an additional way of viewing aspects of our business that, when viewed with GAAP results, provide a better understanding and evaluation of factors and trends affecting our business. We provide non-GAAP financial information for informational purposes and to enhance understanding of our GAAP consolidated financial statements. We use this non-GAAP financial information to evaluate and compare operating results across accounting periods. Readers should consider the information in addition to, but not rather than or superior to, our financial statements prepared in accordance with GAAP. This non-GAAP financial information may be determined or calculated differently by other companies, limiting the usefulness of those measures for comparative purposes.
Constant currency results reported herein are calculated by translating consolidated balance sheet and consolidated statement of operations items denominated in local currency to U.S. dollars using the exchange rate from the prior-year comparable period, as opposed to the current period, in order to exclude the effects of foreign currency rate fluctuations. We used the end-of-period rate for balance sheet items and the average closing daily exchange rate on a monthly basis during the appropriate period for statement of operations items. Our statement of operations constant currency results reflect the monthly exchange rate fluctuations and are not directly calculable from the rates below. Constant currency results, where presented, also exclude the foreign currency gain or loss. The end-of-period and approximate average exchange rates for each applicable currency as compared to U.S. dollars as of and for the three and six months ended March 31, 2022 and March 31, 2021 were as follows:
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March 31,
Three Months Ended
March 31,
Six Months Ended
March 31,
202220212022202120222021
Mexican peso19.9 20.5 20.5 20.3 20.6 20.4 
Guatemalan quetzal7.5 7.6 7.5 7.6 7.5 7.6 
Honduran lempira24.1 23.7 24.2 23.8 24.0 23.9 
Peruvian sol3.7 3.7 3.8 3.6 3.9 3.6 

Operating Results
Segments
We manage our business and report our financial results in three reportable segments;
U.S. Pawn — Represents all pawn activities in the United States;
Latin America Pawn — Represents all pawn activities in Mexico and other parts of Latin America; and
Other Investments — Represents our equity interest in the net income of Cash Converters International and Rich Data Corporation, along with our investment in Founders.
Store Count by Segment
 
Three Months Ended March 31, 2022
 U.S. PawnLatin America PawnConsolidated
As of December 31, 2021516 633 1,149 
New locations opened— 
As of March 31, 2022
516 636 1,152 
 
Three Months Ended March 31, 2021
 U.S. PawnLatin America PawnConsolidated
As of December 31, 2020505 500 1,005 
New locations opened— 
As of March 31, 2021
505 506 1,011 
 
Six Months Ended March 31, 2022
 U.S. PawnLatin America PawnConsolidated
As of September 30, 2021516 632 1,148 
New locations opened— 
As of March 31, 2022
516 636 1,152 
 
Six Months Ended March 31, 2021
 U.S. PawnLatin America PawnConsolidated
As of September 30, 2020505 500 1,005 
New locations opened— 
As of March 31, 2021
505 506 1,011 

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Three Months Ended March 31, 2022 vs. Three Months Ended March 31, 2021
These tables, as well as the discussion that follows, should be read in conjunction with the accompanying condensed consolidated financial statements and related notes.
U.S. Pawn
The following table presents selected summary financial data for our U.S. Pawn segment:
 
Three Months Ended March 31,
Change
(in thousands)20222021
Net revenues:
Pawn service charges$58,772 $49,577 19%
Merchandise sales100,064 93,827 7%
Merchandise sales gross profit41,451 42,015 (1)%
Gross margin on merchandise sales41 %45 %(400)bps
Jewelry scrapping sales3,480 3,581 (3)%
Jewelry scrapping sales gross profit682 432 58%
Gross margin on jewelry scrapping sales20 %12 %800bps
Other revenues24 29 (17)%
Net revenues100,929 92,053 10%
Segment operating expenses:
Store expenses64,492 63,657 1%
Depreciation and amortization2,625 2,636 —%
Segment contribution$33,812 $25,760 31%
Other data:
Net earning assets (a)$226,835 $165,151 37%
Inventory turnover2.6 2.9 (10)%
Average monthly ending pawn loan balance per store (b)$270 $214 26%
Monthly average yield on pawn loans outstanding14 %15 %(100)bps
Pawn loan redemption rate85 %87 %(200)bps
(a)Balance includes pawn loans and inventory.
(b)Balance is calculated based upon the average of the monthly ending balances during the applicable period.


PLO increased 40% to $133.5 million due to increased loan demand reflecting a recovery towards pre-COVID levels.
Pawn service charges increased 19% as a result of higher average PLO for the quarter.
Merchandise sales increased 7% due to our improved retail strategy. This increase was offset by a 1% decrease in merchandise sales gross profit to $41.5 million, as well as a 400 bps decrease in merchandise sales gross profit margin, reflecting a return to more normalized margins.
Store expenses increased 1% primarily due to increased store count.
Segment contribution increased $8.1 million or 31%, due to the changes in net revenues and store expenses described above.
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Latin America Pawn
The following table presents selected summary financial data for the Latin America Pawn segment, including constant currency results, after translation to U.S. dollars from its functional currencies noted above under “Results of Operations — Non-GAAP Constant Currency and Same Store Financial Information."
 
Three Months Ended March 31,
(in thousands)
2022 (GAAP)
2021 (GAAP)
Change (GAAP)
2022 (Constant Currency)
Change (Constant Currency)
Net revenues:
Pawn service charges$17,911 $13,859 29%$17,985 30%
Merchandise sales33,492 21,398 57%33,695 57%
Merchandise sales gross profit9,859 7,420 33%9,920 34%
Gross margin on merchandise sales29 %35 %(600)bps29 %(600)bps
Jewelry scrapping sales2,210 2,494 (11)%2,215 (11)%
Jewelry scrapping sales gross profit200 242 (17)%202 (17)%
Gross margin on jewelry scrapping sales%10 %(100)bps%(100)bps
Net revenues27,970 21,521 30%28,107 31%
Segment operating expenses:
Store expenses21,251 17,492 21%21,398 22%
Depreciation and amortization1,891 1,793 5%1,902 6%
Segment operating contribution4,828 2,236 116%4,807 115%
Other segment expense (income)70 (385)(118)%(66)(83)%
Segment contribution $4,758 $2,621 82%$4,873 86%
Other data:
Net earning assets (a)$66,673 $46,331 44%$65,087 40%
Inventory turnover3.8 4.0 (5)%3.8 (5)%
Average monthly ending pawn loan balance per store (b)60 $56 7%60 7%
Monthly average yield on pawn loans outstanding16 %17 %(100)bps16 %(100)bps
Pawn loan redemption rate (c)82 %82 %—bps82 %—bps
(a)Balance includes pawn loans and inventory.
(b)Balance is calculated based upon the average of the monthly ending balances during the applicable period.
(c)Rate is solely inclusive of results from Mexico Pawn.
 2022 Change
(GAAP)
 2022 Change
(Constant Currency)
Same Store data:
PLO 15%13%
PSC 17%17%
Merchandise Sales 31%31%
Merchandise Sales Gross Profit 12%13%
Store Expenses(1)%(1)%
In the current quarter, we opened three de novo stores, bringing total segment store-count to 636.
PLO increased 34% to $40.1 million (31% on constant currency basis). On a same store basis, PLO increased 15% (13% on a constant currency basis) due to increased loan demand reflecting a recovery towards pre-COVID levels.
PSC increased 29% in the current quarter to $17.9 million (up 30% to $18.0 million on a constant currency basis) as a result of higher average PLO for the quarter.
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Merchandise sales increased 57% (57% on a constant currency basis) and 31% on a same store basis (31% on a constant currency basis) reflecting a renewed focus on customer engagement. Offsetting the sales increase, merchandise sales gross profit margin decreased from 35% to 29% reflecting a return to more normalized margins. Overall, merchandise sales gross profit increased 33% to $9.9 million (34% to $9.9 million on a constant currency basis).
Store expenses increased $3.8 million or 21% (22% on a constant currency basis) primarily due to growth in store count. On a same-store basis, store expenses decreased by $0.2 million or 1% (1% on a constant currency basis).
Segment contribution increased $2.1 million, or 82%, to $4.8 million ($2.3 million or 86% on a constant currency basis), due to the changes in net revenues and store expenses described above.
Other Investments
The following table presents selected financial data for our Other Investments segment after translation to U.S. dollars from its functional currency of primarily Australian dollars:
 
Three Months Ended March 31,
Change
(in thousands)20222021
Net revenues:
Consumer loan fees, interest and other$29 $174 (83)%
Net revenues29 174 (83)%
Segment operating expenses:
Equity in net loss (income) of unconsolidated affiliates1,439 (1,250)(215)%
Segment operating (loss) contribution(1,410)1,424 (199)%
Other segment expense(11)%
Segment (loss) contribution $(1,418)$1,415 (200)%
Segment loss was $1.4 million, a decrease of $2.8 million due to the decrease in equity income for our unconsolidated affiliates. The equity in net loss in the current quarter was primarily due to our equity pickup of Cash Converters' net loss, which included an impairment, primarily of its ROU leased assets, that was attributed to COVID-19.
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Other Items
The following table reconciles our consolidated segment contribution discussed above to net income attributable to EZCORP, Inc., including items that affect our consolidated financial results but are not allocated among segments:
 
Three Months Ended March 31,
Percentage Change
(in thousands)20222021
Segment contribution$37,152 $29,796 25%
Corporate expenses (income):
General and administrative12,227 13,771 (11)%
Depreciation and amortization2,934 3,660 (20)%
(Gain) loss on sale or disposal of assets and other(688)11 *
Interest expense2,527 5,518 (54)%
Interest income— (14)(100)%
Other expense29 51 *
Income before income taxes20,123 6,799 196%
Income tax expense5,236 1,469 256%
Net income$14,887 $5,330 179%
*Represents a percentage computation that is not mathematically meaningful.
Segment contribution increased $7.4 million or 25% over the prior year quarter primarily due to the improved operating results of the segments above.
General and administrative expenses decreased $1.5 million or 11%, primarily driven by the reversal of incentive compensation for the departing CEO.
Interest expense decreased $3.0 million primarily driven by the ASU 2020-06 accounting policy change which no longer requires debt discount be included on our balance sheet effective October 1, 2021. The policy change eliminates the non-cash interest amortization of that debt discount. See Note 1: Organization And Summary Of Significant Accounting Policies to the consolidated financials for further discussion of this recently adopted accounting policy.
Income tax expense increased $3.8 million primarily due to an increase in income before income taxes of $13.3 million this quarter compared to the prior year same quarter.
Income tax expense includes other items that do not necessarily correspond to pre-tax earnings and create volatility in our effective tax rate. These items include the net effect of state taxes, non-deductible items and changes in valuation allowances for certain foreign operations. See Annual Report on Form 10-K for the year ended September 30, 2021 Note 11: Income Taxes of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data” for quantification of these items.
Six Months Ended March 31, 2022 vs. Six Months Ended March 31, 2021
The tables below and discussion that follows should be read in conjunction with the accompanying condensed consolidated financial statements and related notes.
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U.S. Pawn
The following table presents selected summary financial data for the U.S. Pawn segment:
 
Six Months Ended March 31,
Change
(in thousands)20222021
Net revenues:
Pawn service charges$115,329 $99,797 16%
Merchandise sales202,142 176,080 15%
Merchandise sales gross profit85,697 76,209 12%
Gross margin on merchandise sales42 %43 %(100)bps
Jewelry scrapping sales8,460 7,585 12%
Jewelry scrapping sales gross profit1,687 1,592 6%
Gross margin on jewelry scrapping sales20 %21 %(100)bps
Other revenues46 51 (10)%
Net revenues202,759 177,649 14%
Segment operating expenses:
Store expenses129,181 125,749 3%
Depreciation and amortization5,295 5,372 (1)%
Segment operating contribution68,283 46,528 47%
Other segment expense— 27 *
Segment contribution$68,283 $46,501 47%
Other data:
Average monthly ending pawn loan balance per store (a)$270 $224 21%
Monthly average yield on pawn loans outstanding14 %15 %(100)bps
Pawn loan redemption rate84 %86 %(200)bps
*Represents a percentage computation that is not mathematically meaningful.
(a)Balance is calculated based upon the average of the monthly ending balances during the applicable period.
Pawn service charges increased 16% as a result of higher average PLO for the year.
Merchandise sales increased 15% compared to the prior year. Offsetting the sales increase, merchandise sales gross profit margin decreased 100 bps reflecting a return to more normalized margins.
Store expenses increased by 3% due to increased store count and increased labor expenses resulting from growing transaction volume.
Segment contribution increased $21.8 million primarily due to the changes in net revenues and store expenses described above.

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Latin America Pawn
The following table presents selected summary financial data our Latin America Pawn segment, including constant currency results, after translation to U.S. dollars from functional currencies. See “Results of Operations — Non-GAAP Constant Currency and Same Store Financial Information” above.
 
Six Months Ended March 31,
(in thousands)
2022 (GAAP)
2021 (GAAP)
Change (GAAP)
2022 (Constant Currency)
Change (Constant Currency)
Net revenues:
Pawn service charges$37,379 $27,128 38%$37,544 38%
Merchandise sales69,134 46,928 47%69,716 49%
Merchandise sales gross profit20,222 16,466 23%20,390 24%
Gross margin on merchandise sales29 %35 %(600)bps29 %(600)bps
Jewelry scrapping sales4,174 5,249 (20)%4,187 (20)%
Jewelry scrapping sales gross profit367 639 (43)%369 (42)%
Gross margin on jewelry scrapping sales%12 %(300)bps%(300)bps
Other revenues, net240 *243 *
Net revenues58,208 44,240 32%58,546 32%
Segment operating expenses:
Store expenses43,333 34,709 25%43,646 26%
Depreciation and amortization3,871 3,653 6%3,898 7%
Segment operating contribution 11,004 5,878 87%11,002 87%
Other segment income (a)(241)(1,705)(86)%(449)(74)%
Segment contribution$11,245 $7,583 48%$11,451 51%
Other data:
Average monthly ending pawn loan balance per store (a)$60 $55 9%$60 9%
Monthly average yield on pawn loans outstanding16 %17 %(100)bps16 %(100)bps
Pawn loan redemption rate (b)81 %82 %(100)bps81 %(100)bps
*Represents a percentage computation that is not mathematically meaningful.
(a)Balance is calculated based upon the average of the monthly ending balances during the applicable period.
(b)Rate is solely inclusive of results from Mexico Pawn.
 2022 Change
(GAAP)
 2022 Change
(Constant Currency)
Same Store data:
PLO 15%13%
PSC 22%23%
Merchandise Sales 22%23%
Merchandise Sales Gross Profit 2%3%
Store Expenses3%3%
During the six months ended March 31, 2022, our Latin America pawn segment opened four de novo stores.
PSC increased 38% to $37.4 million (38%  to $37.5 million on a constant currency basis) as a result of higher average PLO for the year.
Merchandise sales increased 47% (49% on a constant currency basis) and 22% on a same store basis (23% on a constant currency basis). Offsetting the sales increase, merchandise sales gross profit margin decreased 600 bps from 35% to 29% (29% on a constant currency basis) reflecting a return to more normalized margins.
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Store expenses increased by 25% (26% on a constant currency basis) primarily due to growth in store count. On a same-store basis, store expenses increased by $0.9 million or 3% (3% on a constant currency basis) due to rising labor costs resulting from growing transaction volume.
Segment contribution increased $3.7 million, or 48%, to $11.2 million. This increase was primarily due to the changes in revenue and store expenses described above.
Other Investments
The following table presents selected financial data for our Other Investments segment after translation to U.S. dollars from its functional currency of primarily Australian dollars:
 
Six Months Ended March 31,
Change
(in thousands)20222021
Net revenues:
Consumer loan fees, interest and other72 249 (71)%
Net revenues72 249 (71)%
Segment operating expenses:
Equity in net loss (income) of unconsolidated affiliates301 (1,766)(117)%
Segment operating (loss) contribution(229)2,015 (111)%
Other segment income(4)(201)(98)%
Segment (loss) contribution$(225)$2,216 (110)%


Segment loss was $0.2 million, a decrease of $2.4 million from the prior-year six months ended March 31, 2021, primarily due to the decrease in equity income for our unconsolidated affiliates. The equity in net loss in the current six months ended March 31, 2022 was primarily due to our equity pickup of Cash Converters' net results which included an impairment, primarily of its ROU leased assets, that was attributed to COVID-19.
Other Items
The following table reconciles our consolidated segment contribution discussed above to net income attributable to EZCORP, Inc., including items that affect our consolidated financial results but are not allocated among segments:
 
Six Months Ended March 31,
Percentage Change
(in thousands)20222021
Segment contribution$79,303 $56,300 41%
Corporate expenses (income):
General and administrative27,772 26,281 6%
Depreciation and amortization5,858 6,636 (12)%
(Gain) loss on sale or disposal of assets(688)63 *
Interest expense4,958 10,973 (55)%
Interest income(122)(71)72%
Other expense55 117 (53)%
Income from continuing operations before income taxes41,470 12,301 237%
Income tax expense10,862 2,672 307%
Net income $30,608 $9,629 218%
*Represents a percentage computation that is not mathematically meaningful.


Segment contribution increased $23.0 million or 41% over the prior year 6 months ended March 31, 2021, primarily due to the improved operating results of the segments above.
Interest expense decreased $6.0 million primarily driven by the ASU 2020-06 accounting policy change which no longer requires debt discount be included on our balance sheet effective October 1, 2021. The policy change eliminates the non-cash interest amortization of that debt discount. See Note 1: Organization And Summary Of Significant Accounting Policies to the consolidated financials for further discussion of this recently adopted accounting policy.
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Income tax expense increased $8.2 million primarily due to an increase in income before income taxes of $29.2 million this six months ended March 31, 2022 compared to the prior year same 6 months period ended.
Income tax expense includes other items that do not necessarily correspond to pre-tax earnings and create volatility in our effective tax rate. These items include the net effect of state taxes, non-deductible items and changes in valuation allowances for certain foreign operations. See Annual Report on Form 10-K for the year ended September 30, 2021 Note 11: Income Taxes of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data” for quantification of these items.
Liquidity and Capital Resources
We currently believe that, based on available capital resources and projected operating cash flow, we have adequate capital resources to fund working capital needs, currently anticipated capital expenditures, currently anticipated business growth and expansion, tax payments, and current and projected debt service requirements.
Cash and Cash Equivalents
Our cash and equivalents balance was $255.0 million at March 31, 2022 compared to $253.7 million at September 30, 2021. At March 31, 2022, our cash and equivalents were held in cash depository accounts with major banks or invested in high quality, short-term liquid investments.
Cash Flows
The table and discussion below presents a summary of the selected sources and uses of our cash:
 
Six Months Ended
March 31,
Percentage
Change
(in thousands)20222021
Cash flows provided by operating activities$30,575 $18,721 63%
Cash flows (used in) provided by investing activities(31,887)9,080 (451)%
Cash flows used in financing activities(792)(1,710)(54)%
Effect of exchange rate changes on cash, cash equivalents and restricted cash2,157 5,000 (57)%
Net increase in cash, cash equivalents and restricted cash$53 $31,091 (100)%


The increase in cash flows provided by operating activities year-over-year was primarily due to a $21.0 million increase in net income.
The $41.0 million increase in cash flows used in investing activities year-over-year was primarily due to $16.5 million in outgoing cash flows used to fund other investments and an increase of $38.0 million in net pawn lending, offset by an $20.3 million increase in the sale of forfeited collateral. Of the $16.5 million used to fund other investments, $15.0 million was invested in Founders, as discussed in Note 6: Strategic Investments in Part I, Item 1 - Notes to Interim Condensed Consolidated Financial Statements.
The net effect of these changes was a $0.1 million increase in cash on hand during the current year to date period, resulting in a $263.7 million ending cash and restricted cash balance.
Sources and Uses of Cash
On May 3, 2022, our Board of Directors approved a new share repurchase program, which replaced the previous program that was suspended in March 2020. Under the new program, the Company is authorized to repurchase up to $50 million of our Class A Non-Voting common shares over the next three years. Execution of the program will be responsive to fluctuating market conditions and valuations, liquidity needs and the expected return on investment compared to other opportunities.
Under the stock repurchase program, we may purchase Class A Non-Voting common stock from time to time at management’s discretion in accordance with applicable securities laws, including through open market transactions, block or privately negotiated transactions, or any combination thereof. In addition, we may purchase shares pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934.
The amount and timing of purchases will be dependent on a variety of factors, including stock price, trading volume, general market conditions, legal and regulatory requirements, general business conditions, the level of cash flows, and corporate considerations determined by management and the Board, such as liquidity and capital needs and the availability of attractive alternative investment opportunities. The Board of Directors has reserved the right to modify, suspend or terminate the program at any time.
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Under the previous share repurchase program authorized in December 2019, the Company had repurchased and retired 943,149 shares of our Class A Common Stock for $5.2 million. During the six months ended March 31, 2022, there were no stock repurchases.
We anticipate that cash flows from operations and cash on hand will be adequate to fund any future stock repurchases, our contractual obligations, planned de novo store growth, capital expenditures and working capital requirements through fiscal 2022. We continue to explore acquisition opportunities, both large and small, and may choose to pursue additional debt, equity or equity-linked financings in the future should the need arise. Given the current uncertainty related to the COVID-19 pandemic, we may adjust our capital or other expenditures. Depending on the level of acquisition activity and other factors, our ability to repay our longer term debt obligations, including the convertible debt maturing in 2024 and 2025, may require us to refinance these obligations through the issuance of new debt securities, equity securities, convertible securities or through new credit facilities.
Contractual Obligations
In "Part II, Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended September 30, 2021, we reported that we had $602.6 million in total contractual obligations as of September 30, 2021. There have been no material changes to this total obligation since September 30, 2021, other than changes as the result of adoption of accounting standards as further discussed in Note 1: Organization And Summary Of Significant Accounting Policies of Notes to Interim Condensed Consolidated Financial Statements included in "Part I, Item 1 — Financial Statements."
We are responsible for the maintenance, property taxes and insurance at most of our locations. In the fiscal year ended September 30, 2021, these collectively amounted to $25.5 million.
Recently Adopted Accounting Policies and Recently Issued Accounting Pronouncements
In August 2020, the FASB issued its Accounting Standards Update (“ASU”) 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40), (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Additionally, ASU 2020-06 eliminates beneficial conversion feature and cash conversion models resulting in more convertible instruments being accounted for as a single unit. We early adopted this standard on October 1, 2021 under the modified retrospective basis. The effect of eliminating our debt discount on the 2024 and 2025 Convertible Notes will decrease non-cash interest expense amortization on our Condensed Consolidated Statement of Operations, and the reduction of interest expense will affect our basic earnings per common share. When calculating net income per share of common stock attributable to common shareholders, the Company uses the if-converted method as required under ASU 2020-06 to determine the dilutive effect of the Convertible Notes. The Company did not incur any impact to liquidity or cash flows with recently adopted accounting policy.
Cautionary Statement Regarding Risks and Uncertainties that May Affect Future Results
This Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend that all forward-looking statements be subject to the safe harbors created by these laws. All statements, other than statements of historical facts, regarding our strategy, future operations, financial position, future revenues, projected costs, prospects, plans and objectives are forward-looking statements. These statements are often, but not always, made with words or phrases like "may," "should," "could," "will," "predict," "anticipate," "believe," "estimate," "expect," "intend," "plan," "projection" and similar expressions. Such statements are only predictions of the outcome and timing of future events based on our current expectations and currently available information and, accordingly, are subject to substantial risks, uncertainties and assumptions. Actual results could differ materially from those expressed in the forward-looking statements due to a number of risks and uncertainties, many of which are beyond our control. In addition, we cannot predict all of the risks and uncertainties that could cause our actual results to differ from those expressed in the forward-looking statements. Accordingly, you should not regard any forward-looking statements as a representation that the expected results will be achieved. Important risk factors that could cause results or events to differ from current expectations are identified and described in "Part I, Item 1A — Risk Factors" of our Annual Report on Form 10-K for the year ended September 30, 2021 and "Part II, Item 1A — Risk Factors" of this Report.
We specifically disclaim any responsibility to publicly update any information contained in a forward-looking statement except as required by law. All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to our operations result primarily from changes in interest rates, gold values and foreign currency exchange rates, and are described in detail in "Part II, Item 7A — Quantitative and Qualitative Disclosures about Market Risk" of our Annual Report on Form 10-K for the year ended September 30, 2021. With the exception of the impacts of COVID-19, which are discussed elsewhere in this Report, there have been no material changes in our reported market risks or risk management policies since the filing of our Annual Report on Form 10-K for the year ended September 30, 2021.
ITEM 4. CONTROLS AND PROCEDURES
This report includes the certifications of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-14 of the Securities Exchange Act of 1934 (the "Exchange Act"). See Exhibits 31.1 and 31.2. This Item 4 includes information concerning the controls and control evaluations referred to in those certifications.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2022. Our principal executive officer and principal financial officer have concluded that as of March 31, 2022, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Internal Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 10: Contingencies of Notes to Interim Condensed Consolidated Financial Statements included in "Part I, Item 1 — Financial Statements."
ITEM 1A. RISK FACTORS
Important risk factors that could affect our operations and financial performance, or that could cause results or events to differ from current expectations, are described in "Part I, Item 1A — Risk Factors" of our Annual Report on Form 10-K for the year ended September 30, 2021.

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ITEM 6. EXHIBITS
The following exhibits are filed with, or incorporated by reference into, this report.
Incorporated by ReferenceFiled Herewith
ExhibitDescription of ExhibitFormFile No.ExhibitFiling Date
31.1x
31.2x
32.1†x
21.1x
101.INSInline XBRL Instance Document (the instance document does not appear in the interactive data files because the XBRL tags are embedded within the Inline XBRL document)
101.SCHInline XBRL Taxonomy Extension Schema Documentx
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Documentx
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Documentx
101.LABInline XBRL Taxonomy Extension Labels Linkbase Documentx
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Documentx
104Cover Page Interactive Data File in Inline XBRL format (contained in Exhibit 101)
_____________________________
The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
EZCORP, INC.
Date:May 4, 2022/s/Timothy K. Jugmans
Timothy K. Jugmans,
Chief Financial Officer
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